Prospects Dim for Telecom Shakeup in Canada

Source: Arthur

Last week was supposed to be a watershed moment for the future of telecommunications in Canada.

Currently Bell, Rogers and Telus—often referred to as the ‘Big Three’ or ‘RoBellus’—dominate the Canadian cell phone industry with a combined 94 percent market share.

But with the federal government having professed a desire to see a ‘fourth’ carrier option in every regional market, hope was running high that the imminent auction of the 700 Megahertz radio frequency spectrum would lay the foundations for the emergence of viable, competitive alternatives to the existing RoBellus triopoly.

The Big Three have been limited to each purchasing one of the four available spectrum blocks, leaving one block open reserved for other bidders.

Those hopes were dealt a serious blow when the parent company of Wind Mobile—the most successful of the new carriers created in 2008, when a large chunk of spectrum was set aside for new startups—announced its withdrawal from the current spectrum auction.

Though small regional networks from Quebec, the Maritimes, Saskatchewan and Manitoba remain among the bidders in the current auction, with Wind’s withdrawal it remains unclear whether there will be any serious bids for the fourth block of spectrum in Ontario, Alberta, and British Columbia.

The 700Mhz spectrum, previously used for analog television, is considered the most valuable wireless frequency because of its superior ability to penetrate thick walls and underground, and to also carry over long distances with less distortion.

It is thus considered essential to any new telecom challengers looking to expand their regional cellular coverage, and equally essential to building the next generation LTE (‘long-term-evolution’) networks capable of supporting the massive data transmission required for activities like HD video streaming.

Without access to this crucial spectrum, Wind Mobile will be unable to expand its regional coverage or build a reliable LTE network.

Having announced in the latest Throne Speech their desire to encourage greater competition, or at least a fourth carrier in all regional markets, one of the central planks of the Conservative government’s ‘consumer-friendly’ platform leading into the next federal election now lies ashamble, due mostly to the Harper’s own indecisive fumbling of telecom policy and law.

From its founding Wind Mobile has always relied on foreign investors as its chief financiers, but the Conservative government has been ambivalent and conflicted in its position on foreign ownership of Canadian telecom operators.

After a multi-year drama involving the CRTC (the Canadian Radio-television and Telecommunications Commission) in deliberations over whether foreign ownership of telecom businesses was legal in Canada, the federal government intervened at the last moment to approve Egyptian billionaire Naguib Sawiris’ effective ownership of Wind (as its largest shareholder).

But the government has since rejected an attempt by Sawiris’ company to buy Manitoba Telecom Services’ Allstream division, citing unspecified national security concerns.

Harper has also refused to allow Wind’s current principle investor and largest shareholder, VimpelCom—headquartered in Amsterdam but primarily Russian-based and -owned—to purchase Wind outright, reportedly because of similar ‘national security’ fears.

This ambivalence toward foreign investors was cited by VimpelCom as the reason for its surprise last-minute decision to withhold the funding for Wind’s bidding in the current spectrum auction.

However, VimpelCom claims to still be interested in operating a national mobile network in Canada under less ambiguous conditions.

Meanwhile, the Harper government has aggressively courted Verizon, which operates the largest cellphone network in America, dwarfing the combined assets of Bell, Rogers, and Telus several times over.

Speculation about Verizon’s potential entry to the Canadian wireless market incited a massive publicity campaign by the Big Three, but Verizon has so far downplayed the possibility of expanding northward.

Nonetheless, the US telecom giant continues to lobby and privately negotiate with federal government officials.

Canadians’, and the Harper government’s, hopes for a fourth major carrier in Canada have now turned in desperation to Videotron.

The company is a subsidiary of the Quebecor Media empire that currently operates exclusively in Quebec, but is known to have also purchased some spectrum in southern Ontario in the 2008 auction, and is among the remaining bidders for the 700Mhz spectrum.

Only Videotron and the federal government know whether the company put down the deposit necessary to compete for spectrum in Ontario and other provinces, in addition to Quebec.

If so, the withdrawal of Wind has now given Videotron a golden opportunity to snatch up prime spectrum for cheap.

Videotron, which is also thought to be in negotiations to purchase Mobilicity, another 2008 startup, could plausibly deploy this spectrum to expand outside Quebec, presumably beginning with Ontario.

Equally if not more likely, however, is that they will purchase the spectrum now to gain leverage in future negotiations with the Big Three, or to sell or license the spectrum to other rivals – potentially including Wind.

It is possible that Canadians may still get the greater competition we’re clamouring for, but the prospects of this at the present moment seem slim.